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Pakistan’s lack of industrial progress over decades should be cause for concern about the future. The goods the economy produces competitively are the typical goods that yield so little income that they are only exported by economies that have low wage labour. They are much the same manufactures now as during the 1960s and have been kept competitive by keeping wages down through repeated devaluation. Income per head will rise slowly, at best, if the economy does not learn how to produce goods that yield more income, and that means acquiring the up to date technical knowledge needed to be competitive from the foreign producers who produce such goods. But that is knowledge obtained through R&D and is not provided freely, least of all to would-be competitors. Pakistani firms can try to do their own R&D, but, even with public sector collaboration, they cannot catch up with the established foreign firms, which continue to do their R&D and have more money, experienced staff and facilities.

The two possibilities are to attract foreign direct investment and for Pakistani firms to insert themselves into the production processes of foreign firms. Experience shows that the first, though it has worked well in several countries, can be ruled out for the present; there has been no FDI in Pakistan for making exportable manufactures. But economies like South Korea and China acquired the technical knowledge they needed through subcontracting and joint ventures with American, European and Japanese firms and moved on from there. There is no realistic alternative and task ahead is to determine what has to be done to realise it.

Bio

Sikander Rahim studied mathematics at Cambridge University, graduating with a BA in 1961, after which he studied economics there. He worked at the PIDE, the Economic Affairs Division and the Planning Commission before joining the World Bank staff as a country economist in 1978. He retired from the World Bank in 1997 and has since then been frequently associated with the Lahore School and has occasionally taught here.